Suspending Fees for Improvements

Last week, the City Council made a change to suspend two construction taxes for a limited time in an attempt to encourage commercial property owners to provide improvements for their existing buildings. The hope is that if owners can improve their buildings at a lower cost, they may find tenants—which is a win for them and for San Jose.

Providing incentives to property owners to improve their property is one way the City can show that it is a partner in economic development. As we know, new tenants brings jobs and payroll spending to San Jose. Also, new office development like market rate housing—not affordable housing—pays fees and taxes that helps provide money for road paving. However, the current municipal code kept the construction taxes higher than they needed to be, and it appeared that the high tax may dissuade certain office development like research and development.

With this new policy, any loss of tax revenue for road paving would be taken from the economic development department. The Economic Development department thought this was so important that it was willing to give its own budget away to make it happen.

The other item the council discussed was exploring the traffic impact fees in the North San Jose development plan. There is concern that the fees may be a hindrance to locating a new expansive corporate headquarters. The approved Environmental Impact Report (EIR) for North San Jose was challenged in court, and as a result, the EIR requires that certain road improvements take place. Many of these traffic improvements would have been paid for by the Redevelopment Agency (RDA), but alas the Golden Goose appears dead. Unfortunately, that leaves really high traffic impact fees that increase new development costs in comparison to other cities.

The housing units for North San Jose are traffic mitigation for the EIR, because it is assumed a portion of those new residents will work in North San Jose and/or take shorter car trips versus someone who drives to North San Jose for work from South San Jose.

Cities often invest in infrastructure to induce economic development. For example, if San Jose listed certain infrastructure projects as a core priority, then we could possibly allocate funds and therefore increase jobs in San Jose. These infrastructure projects would have to compete against city departments for funding instead of hoping they will get built.

Or, and possibly better yet, instead of making market rate housing developers in North San Jose pay millions of dollars towards affordable housing projects, let’s instead take that money and allocate it to an earmark fund for the North San Jose traffic impact project. We can literally use this money to pave the way for news jobs in North San Jose.